School’s almost out, and the only thing hotter than the weather is parents’ desire to get their teens out of the house and into the summer workforce. This summer, that’ll be easier than usual; the teen unemployment rate has dipped below 13 percent —a level not seen since the Clinton years. But it’s not all good news. Despite the low youth unemployment rate, the number of teenagers who have exited the labor force is near an all-time high.
One factor to blame: Aggressive increases in the minimum wage at the state and local level. For the past five years, the summer teen labor force participation rate (between May and August) has held steady around 35 percent; as recently as 2001, this figure was above 50 percent. A 2017 report by the Bureau of Labor Statistics identified some arguably-beneficial reasons for this trend, such as teens opting to enroll in summer school over a summer job. But there’s another not-so-beneficial reason: A rising minimum wage.
A recent Mercatus Center study, authored by economists David Neumark and Cortnie Shupe, identified higher minimum wages as the “predominant factor” in the decline in the teen labor force participation rate. The economists studied the sharp decline in teen employment since 2000, and cited that “a rising minimum wage [on the state and federal level] could have priced some teenagers out of the labor market.”
There are a few reasons for that. For starters, a higher wage rate means some service jobs are being filled by older, more-skilled employees. A Drexel University report tracked a five-percentage point drop in the share of teens working restaurant jobs over the last two decades. As the minimum wage rises, employers look for their job applicants whose skill sets them apart from a 16-year-old with little to no work experience. Minimum wage increases are also a leading factor in businesses being forced to provide the same service at a lower cost — either by automating or just eliminating certain positions.
National restaurant chain Red Robin announced earlier this year that the casual diner would eliminate all busboy positions at its 570 locations throughout the country. This follows the trend of other chains including Panera and McDonald’s, which have replaced cashier jobs with self-service tablets.
Automation might be a convenience, but it’s a convenience that used to be part of someone’s job description. Other consequences of rising labor costs are business closures. Breaker’s Water Park in Arizona, for instance, stated that minimum wage increases were taking away all of the park’s profit, and the owner made the unfortunate decision to shut down entirely, eliminating dozens of potential summer jobs for teens. Breaker’s isn’t an isolated example; our organization has compiled dozens of more stories of businesses affected by minimum wage increase that can be viewed at facesof15.com.
Entry-level jobs allow teens to earn more than a paycheck over the summer break; these job opportunities also teach teens valuable job skills that will carry with them throughout their careers. In an earlier study from our organization, economists Dr. Christopher Ruhm and Dr. Charles Baum from University of Virginia and Middle Tennessee State University found that teenagers who held part-time jobs realized annual earnings that were roughly seven percent higher compared to their fellow classmates who didn’t work.
By contrast, the aforementioned Mercatus study found no long-term beneficial earnings impact for teens from a higher minimum wage. The decline in teen employment should be worrisome for economists and parents alike. “Fight for $15” advocates pushing for drastic rises in the minimum wage should continue to think about who their policies are actually impacting. As the evidence demonstrates, teenagers have become the victims.
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Michael Saltsman and Samantha Summers are with the Employment Policies Institute of Washington, D.C.
So let me see if I understand your premise. Kids aren’t entering the job market this summer because the minimum wage has increased and is too high? Kid’s don’t want to make more money and would rather go to summer school? It seems like employers on the Island can’t find enough workers, based on employment ads and signs in just about every window of every business looking for “Help Wanted”. Not sure I agree with your logic.
James:
You’re only looking at one side of the equation-the teenagers (supply). You must consider this from an employer’s position as well (i.e. demand). Mandated higher wages for less skilled workers will cause employers to hire fewer of them while those higher wages simultaneously attract more teenagers (and others). An employer hires someone in the hopes that he/she will be able to produce at a level commensurate with their wage. It’s obvious that an unskilled worker does not necessarily fit this requirement.
More fundamentally, this is an issue of supply and demand. Minimum wage mandates interfere with the smooth functioning of labor markets by driving labor costs up to such a degree that the less skilled will find it hard to secure work…exactly the point of the article. The fact is that employers will often higher much higher skilled labor even though their wages are more than the minimum–it’s simply that their productivity far exceeds that of the unskilled.
You might consider reading Economics in One Lesson by Henry Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf)
RG DeSoto
RG; Normally, your assertion would be correct in a market where there is little demand for workers due to a low demand for products and/or services. However, when business is good, and the supply of workers is low, employers do not eliminate jobs and say, “Oh well, I’ll just give up.” On the contrary, such as in our little enclave, employers not only willingly pay higher wages to attract workers, but may add positions if they can find enough workers to fulfill their orders and services. Prices may increase because of the increased costs but will be supported as long as demand for products and services stays high. Simple supply and demand. Big need for workers due to high demand for products and services provided by businesses, low supply of workers, therefore, more demand for workers even at higher minimum wages. Should be a good summer for kids to work this year.
You make some good points…however this begs two questions:
1) In a tight labor market of what use are minimum wages? Market forces will drive up wages as the labor force, including the unskilled, drives towards full employment. As you’ve observed.
2) In a weak market (over supply of labor at all levels and/or falling demand for such) then the negative effects of minimum wage mandates, as you have pointed out, come into play and the unskilled are culled.
My point is always: get the government out of markets and they will function as they are meant to. Free markets are not perfect…just vastly more efficient then when the clumsy & incompetent hand of politicians and bureaucrats interfere. Government meddling produces one unintended consequence after another and makes matters far worse.
Thanks,
RG DeSoto
This comes as no surprise…economists have pointed out the fatal flaw with minimum wage thinking for decades. Of course, decisions are made via political considerations, not sound economics. Sooner or later the piper must be paid…and teenagers are the ones paying the price, as are other low-skill workers.
RG DeSoto
Not sure why this article was even printed. This doesn’t even pertain to our island. Everywhere you go around here there are help wanted placards in windows. It is easy to get a minimum wage job on our island. Look at who wrote this piece and you will discover why they wrote it.
Why pay more for a teen who usually doesn’t know what they’re doing? Extra money for wage increases doesn’t just miraculously appear. So you either do without, especially when it comes to hiring teens or you try to look for the person that has some experience.